Govt plans to infuse Rs 20k cr into PSBs to meet Basel III norms

SummaryIn order to boost the capital base of public sector banks, the finance ministry is planning to infuse R20,000 crore in PSBs in the upcoming Union Budget to meet Basel III capital adequacy norms.

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In order to boost the capital base of public sector banks, the finance ministry is planning to infuse R20,000 crore in PSBs in the upcoming Union Budget to meet Basel III capital adequacy norms.

A senior official on the condition of anonymity said, the ministry is planning to provide funds to twelve banks in 2013-14. State Bank of India is likely to be get the biggest share of chunk of allocated capital. SBI received R3,004 crore of capital in the current financial year. In Janaury, the finance ministry had approved R12,517-crore infusion in about 10 banks against the budget allocation of R15,000 crore. The announcement of next year’s capital infusion will be made by finance minister P Chidambaram in the Budget on February 28.

Implementation of Basel III capital regulations is envisaged to enhance requirement of core equity capital by banks due to higher capital ratios. As per RBI estimates, the government needs to pump in additional R90,000 crore to retain its shareholding in PSBs at the existing level to meet the Basel III norms over the next five years.

“If the government opts to maintain its shareholding at the current level, the burden of recapitalisation (in PSBs) will be of the order of R90,000 crore,” RBI governor D Subbarao had said last year. He had said the government has two options — either to maintain shareholding at the current level or bring down its shareholding at 51%.

However, he had also said that if the government decides to reduce its shareholding in every bank to a minimum of 51%, the burden reduces to under R70,000 crore.